FORM 10-Q - QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(As last amended in Rel. No. 34-26589, eff. 4/12/93.)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
Commission file number: 0-12668
Hills Bancorporation
Incorporated in Iowa I.R.S. Employer Identification
No. 42-1208067
131 MAIN STREET, HILLS, IOWA
Telephone number: (319) 679-2291
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
SHARES OUTSTANDING
CLASS At October 31, 1995
----- -------------------
Common Stock, no par value 487,622
HILLS BANCORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands)
September 30,
1995 December 31,
Unaudited 1994*
------------- ------------
ASSETS
Cash and due from banks .......................... $ 10,117 $ 10,805
Investment securities:
Available for sale (amortized cost
September 30, 1995 $96,043;
December 31, 1994 $94,914) ................. 95,912 90,795
Held to maturity (fair value
September 30, 1995 $20,093;
December 31, 1994 $19,561) ................. 19,704 19,255
Federal funds sold ............................... 10,855 7,500
Loans, net ....................................... 316,656 300,821
Property and equipment, net ...................... 6,835 6,350
Accrued interest receivable ...................... 4,954 3,776
Deferred income taxes, net ....................... 1,459 2,935
Other assets ..................................... 3,825 2,675
-------- --------
$470,317 $444,912
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Noninterest-bearing deposits ......................... $ 37,061 $ 35,470
Interest-bearing deposits ............................ 342,259 337,368
--------- ---------
Total deposits ................................... $ 379,320 $ 372,838
Federal funds purchased and securities
sold under agreements to repurchase .............. 10,303 7,043
Federal Home Loan Bank notes ......................... 30,727 20,758
Accrued interest payable ............................. 1,832 1,548
Other liabilities .................................... 1,412 1,068
--------- ---------
$ 423,594 $ 403,255
--------- ---------
REDEEMABLE COMMON STOCK HELD BY
EMPLOYEE STOCK OWNERSHIP PLAN
(ESOP) ........................................... $ 5,381 $ 5,210
--------- ---------
STOCKHOLDERS' EQUITY
Capital stock, common, no par value;
authorized 2,000,000 shares;
issued 487,773 shares ............................ $ 8,915 $ 8,915
Retained earnings .................................... 37,890 35,336
Unrealized gains (losses) on debt securities, net .... (82) (2,594)
--------- ---------
$ 46,723 $ 41,657
Less, maximum cash obligation related to ESOP shares . 5,381 5,210
--------- ---------
$ 41,342 $ 36,447
--------- ---------
$ 470,317 $ 444,912
========= =========
<FN>
* Derived from audited financial statements.
</FN>
See Notes to Financial Statements.
HILLS BANCORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
Three and Nine Months Ended September 30, 1995 and 1994
(In Thousands, Except Per Share Data)
Three Months Ended Nine Months Ended
September 30 September 30
--------------------------- -------------------------
1995 1994 1995 1994
------- ------- ------- -------
Interest Income:
Interest and fees on loans ............................ $ 7,041 $ 5,947 $20,300 $17,002
Interest on investment securities
Taxable ............................................. 1,273 1,238 3,677 3,818
Non-taxable ......................................... 249 259 770 789
Other interest income ................................. 180 18 283 116
------- ------- ------- -------
Total interest income ................................. $ 8,743 $ 7,462 $25,030 $21,725
------- ------- ------- -------
Interest Expense:
Interest on deposits .................................. $ 4,193 $ 3,317 $11,923 $ 9,990
Interest on securities sold under
agreements to repurchase ............................ 102 75 270 141
Interest on FHLB borrowings ........................... 546 279 1,380 771
Interest portion of Employee Stock
Ownership Plan contribution ......................... 0 1 0 4
------- ------- ------- -------
Total interest expense .............................. $ 4,841 $ 3,672 $13,573 $10,906
------- ------- ------- -------
Net interest income ................................. $ 3,902 $ 3,790 $11,457 $10,819
Provision for loan losses ................................. 180 180 540 540
------- ------- ------- -------
Net interest income after
provision for loan losses ......................... $ 3,722 $ 3,610 $10,917 $10,279
------- ------- ------- -------
Other Income:
Real estate origination fees .......................... $ 139 $ 82 $ 215 $ 362
Trust department fees ................................. 154 154 482 472
Deposit account charges and fees ...................... 419 382 1,202 1,103
Other fees and charges ................................ 235 203 709 625
------- ------- ------- -------
$ 947 $ 821 $ 2,608 $ 2,562
------- ------- ------- -------
Other Expenses:
Salaries and employee benefits ........................ $ 1,538 $ 1,299 $ 4,247 $ 3,896
Occupancy expenses .................................... 203 184 579 527
Furniture and equipment ............................... 277 253 801 739
F.D.I.C. insurance .................................... (24) 200 388 592
Office supplies and postage ........................... 189 153 533 456
Other operating ....................................... 479 575 1,675 1,774
------- ------- ------- -------
$ 2,662 $ 2,664 $ 8,223 $ 7,984
------- ------- -------
Income before income taxes .......................... $ 2,007 $ 1,767 $ 5,302 $ 4,857
Federal and state income taxes ............................. 568 501 1,480 1,317
Net Income ................................................. $ 1,439 $ 1,266 $ 3,822 $ 3,540
Per common share:
Net income .................................................. $ 2.93 $ 2.59 $ 7.79 $ 7.25
Dividend, January ........................................... 0 0 2.60 2.40
Weighted average of common outstanding stock ................ 490,816 489,319 490,832 488,342
See Notes to Financial Statements
HILLS BANCORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Nine Months Ended September 30, 1995 and 1994
(In Thousands)
Capital Retained Unrealized ESOP
Total Stock Earnings Losses Obligations
-------- -------- -------- ---------- -----------
Balance, January 1, 1995 ...................... $ 36,447 $ 8,915 $ 35,336 $ (2,594) $ (5,210)
Net income .................................... 3,822 0 3,822
Change related to ESOP shares ................. (171) 0 0 0 (171)
Cash dividends ($2.60 per share) .............. (1,268) 0 (1,268) 0 0
Unrealized gains (losses) on
debt securities, net ........................ 2,512 0 0 2,512 0
-------- -------- -------- -------- --------
Balance, September 30, 1995 ................... $ 41,342 $ 8,915 $ 37,890 $ (82) $ (5,381)
======== ======== ======== ======== ========
Balance, January 1, 1994 ...................... $ 35,943 $ 8,898 $ 31,573 $ 283 $ (4,811)
Net income .................................... 3,540 0 3,540 0 0
Payment on debt of ESOP ....................... 131 0 0 0 131
Change related to ESOP shares ................. (571) 0 0 0 (571)
Cash dividends ($2.40 per share) .............. (1,170) 0 (1,170) 0 0
Unrealized gains (losses) on debt
securities, net ............................. (2,029) 0 0 (2,029) 0
-------- -------- -------- -------- --------
Balance, September 30, 1994 ................... $ 35,844 $ 8,898 $ 33,943 $ (1,746) $ (5,251)
======== ======== ======== ======== ========
See Notes to Financial Statements.
HILLS BANCORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1995 and 1994
(In Thousands)
1995 1994
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ......................................... $ 3,822 $ 3,540
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation ................................... 607 535
Provision for loan losses ...................... 540 540
(Increase) decrease in accrued interest
receivable ................................... (1178) (247)
Amortization of bond discount .................. 374 600
(Increase) in other assets ..................... (1150) (324)
Increase in accrued interest and other
liabilities .................................. 628 324
-------- --------
Net cash provided by operating activities ...... $ 3,643 $ 4,968
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investment
securities:
Available for sale ............................... $ 13,000 $ 29,069
Held to maturity ................................. 2,382 2,243
Purchase of investment securities
Available for sale ............................... (14,458) (19,360)
Held to maturity ................................. (2,876) (1,979)
Federal funds sold, net ............................ (3,355) 3,469
Loans made to customers, net of collections ........ (16,375) (29,056)
Purchases of property and equipment ................ (1,092) (557)
-------- --------
Net cash (used in) investing activities .......... $(22,774) $(16,171)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits .............. $ 6,482 $ 5,337
Net increase (decrease) in securities sold
under agreements to repurchase ................. 3,260 4,451
Borrowings from FHLB ............................. 10,000 5,000
Payments on FHLB ................................. (31) (32)
Dividends paid ................................... (1,268) (1,170)
-------- --------
Net cash provided by financing activities ..... $ 18,443 $ 13,586
-------- --------
Increase in cash and due from banks ........... $ (688) $ 2,383
CASH AND DUE FROM BANKS
Beginning ........................................ $ 10,805 10,107
-------- --------
Ending ........................................... $ 10,117 $ 12,490
======== ========
SUPPLEMENTAL DISCLOSURES Cash payments for:
Interest paid to depositors and others ........... $ 11,639 $ 10,940
Interest paid on other obligations ............. 1,650 867
Income taxes ................................... 1,538 1,439
Non-cash financing transactions:
Increase in maximum cash obligation related
to ESOP shares ............................... 171 571
Increase in stockholders' equity related
to ESOP debt ................................. 0 132
Net unrealized gains (losses) on debt
securities ................................... 2,512 2,029
See Notes to Financial Statements.
HILLS BANCORPORATION
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1. Interim Financial Statements
Interim consolidated financial statements have not been examined
by independent public accountants, but include all adjustments
(consisting only of normal recurring accruals) which, in the
opinion of management, are necessary for a fair presentation of
the results for these periods. The results of operation for the
interim periods are not necessarily indicative of the results for
a full year.
For purposes of reporting cash flows, cash and due from banks
includes cash on hand and amounts due from banks (including cash
items in process of clearing). Cash flows from demand deposits,
NOW accounts, savings accounts, and federal funds purchased and
sold are reported net since their original maturities are less
than three months. Cash flows from loans and time deposits are
presented as net increases or decreases.
Note 2. Loans
The following tables set forth the composition of loans and the
allowance for loan losses:
(In thousands)
September 30, September 31,
1995 1994
------------- -------------
Agricultural ......................... $ 19,591 $ 17,826
Commercial and financial ............. 27,569 26,024
Real estate, construction ............ 7,886 6,933
Real estate, mortgage ................ 236,763 225,342
Loans to individual .................. 31,455 30,906
-------- --------
$323,264 $307,031
Less allowance for loan losses ....... 6,608 6,210
-------- --------
$316,656 $300,821
======== ========
Transactions in the allowance for loan losses are as follows:
(In thousands)
Three months Nine months
ended ended
September 30, September 30,
1995 1995
------------- -------------
Balance, beginning .............. $ 6,529 $ 6,210
Provision charged to expense .. 180 540
Net charge-offs ............... (101) (142)
------- -------
Balance, ending ................. $ 6,608 $ 6,608
======= =======
The following summarizes the Company's nonaccrual, past due, restructured and
impaired loans:
(In thousands)
September 30, September 31,
1995 1994
------------- ------------
Nonaccrual .................... $ 0 $ 0
Accruing loans, past due 90
days or more ................ 1,146 822
Restructured loan ............. 0 0
There are no impaired loans as of September 30, 1995
PART I, ITEM 2.
HILLS BANCORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE FINANCIAL CONDITION AND RESULTS OF OPERATION
The consolidated balance sheet of Hills Bancorporation as of September 30, 1995
reflects total assets of $470,317,000 which is an increase of $25,405,000 from
December 31, 1994. Net loans are $316,656,000 which represents an increase of
$15,835,000 from December 31, 1994. Compared to one year ago, total assets have
increased from $432,463,000 to $470,317,000 for an increase of $37,854,000. Also
during this time, net loans increased $25,164,000 to $316,656,000 as of
September 30, 1995. These loan increases were primarily single family
residential loans in the Iowa City and Coralville area. By September 30, 1995,
the U.S. Government bond interest rates, after increasing during 1994, have
decreased back to yields similar to mid-1994. Due to these falling interest
rates on investment securities, the unrealized loss on investment securities
that was $4,119,000 at December 31, 1994 has been reduced to an unrealized loss
of $131,000 at September 30, 1995. This also had the effect of increasing
stockholders' equity by $2,512,000 from December 31, 1994 to September 30, 1995.
The changes in interest rates have a direct effect on secondary market financing
and as a result on other income for the Bank in terms of loan origination fees.
Deposits (when federal funds purchased and securities sold under agreements to
repurchase are included) as of September 30, 1995 totaled $389,623,000, an
increase of $9,742,000 for the first nine months. September 30, 1995 deposits,
including repos, have grown $25,135,000 from September 30, 1994. Also during the
last twelve months, borrowings from the FHLB have increased from $20,758,000 to
$30,727,000. Asset-liability management encompasses both the management of
interest rate sensitivity and the maintenance of adequate liquidity. Interest
rate sensitivity management attempts to provide the optimal level of net
interest income while managing exposure to risks associated with interest rate
movements. Liquidity management involves planning to meet anticipated funding
needs. Management monitors the rate sensitivity and liquidity positions on an
on-going basis and, when necessary, appropriate action is taken to minimize any
adverse effects of rapid interest rate movements or any unexpected liquidity
concerns.
In January 1995, Hills Bancorporation paid a dividend of $2.60 per share, an
8.33% increase from the $2.40 paid in January 1994. The total dividend of
$1,268,000 is deducted from stockholders' equity and is reflected in the
resulting stockholders' equity as of September 30, 1995 of $41,342,000.
Stockholders' equity at September 30, 1995 and December 31, 1994 reflects an
adjustment for unrealized gain (losses) on debt securities, net of income taxes.
The total stockholders' equity of Hills Bancorporation before the reduction for
the ESOP shares as a percent of total assets is 9.93%. Under risk-based capital
rules, total capital is 14.80% of risk- adjusted assets, compared to the current
8% requirement.
The consolidated net income for the three months ended September 30, 1995 was
$1,439,000 compared to $1,266,000 for the same period ended September 30, 1994.
This is an increase of $173,000 representing an earnings per share for the three
months of $2.93 compared to $2.59 for the same three months in 1994. For the
nine months ending September 30, 1995 and 1994, the net income was $3,822,000
and $3,540,000; respectively. Net interest income for 1995 is up by $638,000
over 1994 and is primarily the result of earning assets being $32.0 million
higher in 1995 compared to 1994. The provisions for loan losses are the same for
all quarters presented and is reflective of management's overall opinion of the
loan portfolio at this time, the growth of the loan portfolio, and the level of
the reserve as of September 30, 1995.
Other income of the bank was $2,608,000 compared to $2,562,000 for the nine
months ended September 30, 1995 and 1994, respectively. Loan origination fees
amounted to $215,000 for the nine month period ended September 30, 1995 and
$362,000 for the nine months ended September 30, 1994. Due to current interest
rates, loan origination fees are expected to continue except the Bank will see a
drop for 1995 in total loan origination fees compared to prior years. The Trust
Department fees were $482,000 and $472,000 for the nine months ending September
30, 1995 and 1994, respectively and represents primarily an increase in accounts
under management.
Other expenses have increased from $7,984,000 for the nine months ended
September 30, 1994 to $8,223,000 for the period ended September 30, 1995. Of
this net increase of $239,000, salaries and employee benefits accounted for a
$351,000 increase. This is a combination of salary increases and the number of
full-time equivalent employees increasing from September 30, 1994 to September
30, 1995 by nine employees. For the quarter and the nine months ending September
30, 1995 compared to the same period in 1994 the major increase in net income is
accounted for by a reduction of F.D.I.C. insurance premiums. The premium was
retroactively adjusted back to June 1, 1995, from $.23 per $100 in deposits to
$.04 and resulted in a refund for the third quarter of approximately $230,000.
The occupancy, furniture and equipment, office supplies and the other operating
expenses totaled $3,588,000 for the nine months ending September 30, 1995
compared to $3,496,000 for the same period in 1994. Federal and state income
taxes for 1995 are more than in 1994, primarily the result of increased income
before taxes.
The Bank's principal sources of funds continues to be prepayment of loan
principal and current amortized loan payments. In addition, funds are provided
from current operations. All of the funds are used to fulfill loan commitments,
make short-term investments, and fund any deposit withdrawals needed. The
Company has no material commitments or plans which will affect its liquidity or
capital resources. The acquisition of property and equipment may be in cash
purchases, or they may be financed if favorable terms are available.
HILLS BANCORPORATION
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no material pending legal proceedings.
Item 2. Changes in Securities
There were no changes in securities.
Item 3. Defaults upon Senior Securities
Hills Bancorporation has no senior securities.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during
the quarter ended September 30, 1995.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit See exhibit II - Statement Re Computation of
Earnings Per Common Share
(b) Reports on Form 8-K No reports on Form 8-K have been
filed during the quarter ended September 30, 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned and thereunto duly authorized.
HILLS BANCORPORATION
(Registrant)
11/14/95 /s/ Dwight O. Seegmiller
- ------------------------------ -------------------------------
Date Dwight O. Seegmiller, President
(Duly authorized officer
of the registrant)
/s/ James G. Pratt
-------------------------------
James G. Pratt, Treasurer
(Principal Financial Officer)